1、R. GLENNHUBBARDANTHONY PATRICKOBRIENFIFTH EDITION 2015 Pearson Education, Inc. 2 2015 Pearson Education, Inc.Chapter Outline andLearning Objectives14.1 Oligopoly and Barriers to Entry14.2 Using Game Theory to Analyze Oligopoly14.3 Sequential Games and Business Strategy14.4 The Five Competitive Force
2、s ModelCHAPTER14 Oligopoly:Firms in Less Competitive Markets3 2015 Pearson Education, Inc.Oligopoly: A Very Different Market StructureIn the previous chapters, we examined perfect and monopolistic competition.We were able to use similar logic to argue how those firms would behave: they would produce
3、 until their marginal cost was equal to marginal revenue, and the low barriers to entry would result in profit being competed away in the long run.Oligopoly, a market structure in which a small number of interdependent firms compete, will require completely different tools to analyze. Why?1. Oligopo
4、lists are large, and know that their actions have an effect on one another.2. Barriers to entry exist, preventing firms from competing away profits.LEARNING OBJECTIVE4 2015 Pearson Education, Inc.Oligopoly and Barriers to Entry14.1Show how barriers to entry explain the existence of oligopolies.5 201
5、5 Pearson Education, Inc.Which Markets Are Oligopolistic?Before we analyze how oligopolists behave, it is useful to know which firms/markets we are discussing.A useful tool for identifying the type of market structure is the four-firm concentration ratio: the fraction of an industrys sales accounted
6、 for by its four largest firms.A four-firm concentration ratio larger than 40% tends to indicate an oligopoly.Although there are limits to how useful four-firm concentration ratios can be, they are a useful tool in discussing the concentration of market power within an industry.6 2015 Pearson Educat
7、ion, Inc.Examples of OligopoliesExamples of oligopolies in retail trade and manufacturingTable 14.1Retail Trade ManufacturingIndustryFour-Firm Concentration Ratio IndustryFour-Firm Concentration RatioDiscount department stores97% Cigarettes 98%Warehouse clubs and supercenters94% Beer 90%College book
8、stores 75% Computers 87%Hobby, toy, and game stores72% Aircraft 81%Radio, television, and other electronic stores70% Breakfast cereal 80%Athletic footwear stores 68% Dog and cat food 71%Pharmacies and drugstores63% Automobiles 68%7 2015 Pearson Education, Inc.Why Do Oligopolies Exist?Oligopolies oft
9、en exist because of barriers to entry: anything that keeps new firms from entering an industry in which firms are earning economic profits.One example of a barrier to entry is economies of scale: the situation when a firms long-run average costs fall as the firm increases output. This can make it di
10、fficult for new firms to enter a market, because new firms usually have to start small, and will hence have substantially higher average costs than established firms.8 2015 Pearson Education, Inc.Economies of Scale and the Extent of CompetitionAn industry will be competitive if the minimum point on
11、the typical firms long-run average cost curve (LRAC1) occurs at a level of output that is a small fraction of total industry sales, such as Q1.The industry will be an oligopoly if the minimum point comes at a level of output that is a large fraction of industry sales, such as Q2.Economies of scale h
12、elp determine the extent of competition in an industryFigure 14.19 2015 Pearson Education, Inc.Why Else Do Oligopolies Exist?Ownership of a key input If control of a key input is held by one or a small number of firms, it will be difficult for additional firms to enter. Examples: Alcoabauxite for al
13、uminum productionDe BeersdiamondsOcean SpraycranberriesGovernment-imposed barriers Governments might grant exclusive rights to some industry to one or a small number of firms. Examples: Occupational licensing for dentists and doctorsPatentsTariffs and quotas imposed on foreign companiesPatent: The exclusive right to a product for a period of 20 years from the date the patent is filed with the government.LEARNING OBJECTIVE10 2015 Pearson Education, Inc.Using Game Theory to Analyze Oligopoly14.2Use game theory to analyze the strategies of oligopolistic firms.
